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Land on the Rise: Five Golden Rules of Investing in US Residential Land
July 26, 2013Article by Ray Withers
As covered in our recent article, The Sun Shines on USA Real Estate as the American Property Market Booms, the market continues to show the most significant recovery since 2006/2007. A combination of rising house prices, falling foreclosures and rocketing demand puts the USA at the forefront of global property investment. In addition to international investors flocking to buy the last of the foreclosure inventory, a hot new trend has now emerged – residential land.
“The world has just woken up and said, ‘We need land!’
The Wall Street Journal (April 2013) reports: “A year ago, Nate Nathan, an Arizona land broker, struggled in vain to sell several hundred home sites. He listed the lots for $54,000 apiece, but buyers would offer no more than $45,000.
“All that changed over the past year. As Phoenix home prices picked up, builders suddenly started coming to Mr. Nathan and making ever-higher offers. This year, he has sold 850 lots, including 250 lots for $96,000 apiece in the past 45 days. “The world has just woken up and said, ‘We need land!'” Mr. Nathan said.”
Boom boosts demand for new builds
Nate Nathan’s good fortune is being shared across the USA as the burgeoning property boom also puts upwards pressure on both land prices and demand for new builds. American citizens want to buy their own homes again, signalling a significant shift from the downturn when builders halted development and liquidated land for pennies.
The latest figures from analysts Zelman and Associates, show land values across the US rose 13% in 2012, the first annual gain since 2005. Previously, land had lost a cumulative 58% of its value. According to the National Association of Home Builders, land cost constitutes 21.7% of the final sale price of a new home and, as land prices rise, builders tend to pass 100% of the costs on to the home buyers.
Indeed, Zillow reports a 5.8% increase in home values to the end of Q2 2013, a 2.4% increase from Q1 and the largest annual gain since August 2006. Zillow analysts expect values to rise a further 5% over the next 12 months.
Incredible recovery and doubled equity
The rate of new home construction is also gaining momentum. The Census Bureau reports an increase of 27.7% in the past year; and analyst Metrostudy reports finished-lot prices gaining 18% over the same period. New build permits for single and multi-family homes are also up 35.8% from a year ago, surging to an annual rate of 1,017,000.
Private equity firms and other land investors are selling out and cashing in. GTIS Partners (NY) tells us: “we doubled our equity … the rate of recovery in some of these areas has just been incredible.”
The trick to investing
Ray Withers, Property Frontiers CEO, explains: “The growing demand for ready-to-build land plots looks set to continue as the US market booms again. This means more options for investors. Currently, you can buy fully-serviced land plots on upmarket residential communities at 39% below market value. Some of these have buy-back options offering 65% profit. You can develop and sell direct, or you can choose to buy and hold to potentially triple your investment in 5 to 7 years.”
He continues: “The trick is to know where and when to buy. You also have to be fast off the mark, as these developments are hugely popular. This can be difficult as a lot of land deals are off-market and, by the time the public hear of them, they are already sold out.”
Five golden rules of US land investment
So how do you know which deals to choose? Here are the five golden rules of investing in US land.
1. Ensure your BMV deal is actually below market value. Check the discount is genuine.
2. Look for developments in already-popular areas, such as high-end residential communities.
3. Choose your term. The safest investments offer both short and longer term profit options.
4. Go for investments with defined exit strategies, e.g. buy-backs, re-sales, etc.
5. Reduce risk and gain confidence by working with an experienced partner. Property Frontiers has the knowledge to ensure extensive due diligence is completed on every deal, along with the contacts to bring our clients the best US property and land investments.
Contact us to find out about our exclusive, off-market land deal in Catawba Shores, South Carolina, USA, where you can invest from just $26,000 for a 65% return short term (2 years), or projected profits up to 148% longer term (10 years).